Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Quarterly Period ended April 30, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
for the Transition Period From ------- to ------------
Commission File Number 333-4837
MCA FINANCIAL CORP.
(Exact name of Registrant
as specified in its charter)
Michigan 38-3014001
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
23999 Northwestern Hwy., Southfield, MI 48075
(Address of principal executive offices)
(810) 358-5555
(Registrant's Telephone Number, including area code)
N/A
(Former Name, Former Address, and Former Fiscal
Year, if Changed Since Last Report)
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [XX] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of April 30, 1996, there were outstanding 478,643 shares of the issuer's
common stock (including shares subject to forfeiture).
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
MCA FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
ASSETS
April 30
1996 January 31
(Unaudited) 1996
----------- ----------
Cash $ 961,302 $ 2,730,408
Land contracts held for resale 9,515,610 11,484,877
Mortgages held for resale 74,942,375 63,306,372
Accounts receivable 8,524,202 9,722,527
Accounts receivable, related parties 8,863,132 8,256,090
Purchased servicing rights, net 22,830,599 27,293,358
Investments 2,441,816 2,492,816
Syndication participations 45,881 67,903
Real estate held for resale 267,858 392,013
Furniture and equipment, net 4,851,275 4,856,330
Deferred charges and other assets 4,591,238 4,587,947
----------- -----------
$137,835,288 $135,190,641
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable $ 94,777,412 $ 86,597,703
Subordinated debentures 10,501,000 9,174,000
Accounts payable 19,197,538 25,206,687
Accounts payable-related parties 2,567,647 1,693,311
Accrued interest and other expenses 1,137,766 2,058,080
Deferred federal income tax 300,000 300,000
----------- -----------
128,481,363 125,029,781
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock
Authorized 3,750,000 shares
No par, stated value $.01 each.
Issued and outstanding, 448,617 shares at
January 31, 1996 and 448,617 shares at
April 30, 1996. 4,486 4,486
Preferred stock (Series A)
Authorized 500,000 shares, $10 stated
value.
Issued and outstanding 203,022 shares
at January 31, 1996 and April 30, 1996. 2,030,220 2,030,220
Preferred stock (Series B)
Authorized 750,000 shares, $10 stated
value.
Issued and outstanding 336,619 shares
at January 31, 1996 and April 30, 1996. 3,366,190 3,366,190
Additional paid-in-capital 3,457,251 3,457,251
Retained earnings 495,778 1,302,713
----------- -----------
9,353,925 10,160,860
----------- -----------
$137,835,288 $135,190,641
=========== ===========
See notes to consolidated financial statements
<PAGE>
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Three Months
Ended Ended
April 30, 1996 April 30, 1995
-------------- --------------
REVENUES
Gain on sale of land contracts $ 600,104 $ 723,206
Gain on sale of real estate 351,701 128,523
Gain on sale of real estate-related
parties 1,690,000 652,421
Gain on bulk sales of servicing rights 1,915,486 678,813
Mortgage origination fees and gain on
sale of mortgages 3,212,184 2,124,337
Servicing fees 1,700,919 1,389,846
Interest income 1,661,405 828,657
Other income 286,536 225,093
---------- ----------
Total revenues 11,418,335 6,750,896
---------- ----------
EXPENSES
Payroll 3,727,558 2,728,398
Interest 2,278,810 1,407,253
Commissions 1,667,349 892,679
Professional services 415,293 291,312
Depreciation 150,091 118,759
Amortization 1,125,709 454,914
General and administrative 3,039,049 2,096,767
---------- ----------
Total expenses 12,403,859 7,990,082
---------- ----------
INCOME <LOSS> BEFORE
FEDERAL INCOME
TAXES (985,524) (1,239,186)
Provision (credit) for federal
income taxes 300,000 402,000
----------- ----------
NET INCOME <LOSS> $ (685,524) $ (837,186)
=========== ==========
Earning <loss> per share $ (1.53) $ (2.07)
=========== ==========
Weighted average number of
shares outstanding 448,617 404,906
=========== ==========
See notes to consolidated financial statements
<PAGE>
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMPONENTS OF STOCKHOLDER'S EQUITY
(Unaudited)
Three Months Ended April 30, 1996 and 1995
<TABLE>
COMMON PREFERRED STOCK PREFERRED STOCK ADDITIONAL RETAINED
STOCK SERIES A SERIES B PAID-IN CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1995 $ 4,049 $ 2,030,220 $ 3,366,190 $ 2,717,030 $ 1,172,823 $ 9,290,312
Net Loss - - - - (837,186) (837,186)
Issuance of Common Stock 200 - - 599,559 - 599,759
Preferred Stock Dividends - - - - (115,419) (115,419)
------ ------------ ------------ ----------- ---------- ----------
Balance April 30, 1995 $ 4,249 $ 2,030,220 $ 3,366,190 $ 3,316,589 $ 220,218 $ 8,937,466
====== ============ ============ =========== ========== ==========
Balance, January 31, 1996 $ 4,486 $ 2,030,220 $ 3,366,190 $ 3,457,251 $ 1,302,713 $10,160,860
Net Loss - - - - (685,524) (685,524)
Issuance of Common Stock - - - - - -
Preferred Stock Dividends - - - - (121,411) (121,411)
------ ------------ ------------ ----------- ---------- ----------
Balance, April 30, 1996 $ 4,486 $ 2,030,220 $ 3,366,190 $ 3,457,251 $ 495,778 $ 9,353,925
====== ============ ============ =========== ========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Three Months
Ended April 30 Ended April 30
1996 1995
--------------- --------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (685,524) $ (837,186)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,275,800 573,673
Decrease in land contracts held for resale 1,969,267 4,270,305
Increase in mortgages held for resale (11,636,003) (5,438,798)
Decrease in accounts receivable 591,283 2,142,335
(Increase) decrease in deferred charges
and other assets (267,490) (1,008,767)
Decrease in accounts payable (5,134,813) (4,923,375)
Decrease in accrued expenses (920,314) (3,812)
---------- ---------
Net cash used in operating activities (14,807,794) (5,225,625)
---------- ---------
CASH FLOWS USED IN INVESTING
ACTIVITIES:
Acquisition of purchased servicing rights - (5,911,313)
Sale of purchased servicing rights 3,601,249 1,290,411
Capital expenditures (145,036) (207,104)
Real estate acquisitions - (1,251,401)
Real estate sales 124,155 -
Decrease in investments 51,000 -
Decrease (increase) in investments
in syndications 22,022 (147,297)
--------- ---------
Net cash provided by (used in)
investing activities 3,653,390 (6,226,704)
--------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from notes payable 222,399,737 88,236,112
Payments on notes payable (214,220,028) (79,928,445)
Proceeds from subordinated debentures 1,327,000 1,474,000
Proceeds from issuance of common stock - 599,759
Dividends on preferred stock (121,411) (115,419)
----------- ----------
Net cash provided by
financing activities 9,385,298 10,266,007
----------- ----------
Net decrease in cash (1,769,107) (1,186,322)
Cash at beginning of period 2,730,408 2,931,234
---------- ----------
Cash at end of period $ 961,302 $ 1,744,912
=========== ===========
See notes to consolidated financial statements
<PAGE>
MCA FINANCIAL CORP.
Notes to Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The consolidated balance sheet as of April 30, 1996 and the related
consolidated statements of operations, changes in components of
stockholders' equity and cash flows for the three months ended April 30,
1996 and 1995 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such financial statements have been
included. Such adjustments consisted only of normal recurring items.
Interim results are not necessarily indicative of results for a full year.
The financial statements as of April 30, 1996 and for the three months then
ended should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended January 31, 1996.
The accounting policies followed by the Company with respect to the
unaudited interim financial statements are consistent with those stated in
the 1996 MCA Financial Corp. Annual Report on Form 10-K.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
The primary financing needs for the Company's mortgage banking activities
are for loan funding activities and the accumulation of mortgage servicing
rights.
Loan funding activities are primarily financed through the use of mortgage
warehouse lines of credit with commercial banks. The Company also provides
funding for loans by using a technique known as "table funding", which is
common in the mortgage banking industry. In this case, funds are advanced
directly to the title company for closing from a third party source of
funds, typically another mortgage bank or a financial institution. This
technique avoids the use of the Company's warehouse lines of credit, but
proves less profitable as a result of fees charged by the third party
provider of funds. For the past year, the Company financed approximately
93% of its mortgage originations using its warehouse lines of credit and
approximately 7% with table funding sources.
The Company currently has a $25 million warehousing line of credit, through
MCA Mortgage, with PNC Mortgage Bank, N.A.. This revolving warehousing line
of credit provides financing for funding and originating residential
mortgage loans. Interest on bank borrowings are based on the bank's prime
rate. Mortgage loans held for sale are pledged as collateral. This line of
credit is scheduled to expire on July 1, 1996. The Company also has a $30
million Whole Loan Financing Facility, through MCA Mortgage, with DLJ
Mortgage Capital, Inc. This facility also provides financing for funding
and originating residential mortgage loans. Interest on borrowings under
this facility are based on the federal funds rate plus 1.5%. Mortgage loans
held for sale are pledged as collateral and this facility may be terminated
upon short notice. This facility expires on July 15, 1996. The Company
also has a $10 million warehousing line of credit with Paine Webber Real
Estate Securities, Inc. ("Paine Webber"). Interest on these borrowings are
based on LIBOR plus 1.5%. This facility is scheduled to expire on November
1, 1996. Aside from the DLJ Mortgage Capital, Inc. facility, the Company
expects to renew these warehousing lines of credit upon their respective
expirations. At April 30, 1996 a total of $60 million was outstanding under
these facilities. The Company also has a commitment from Bank One, Texas
N.A. to provide a $30 million warehousing line of credit. The Company
expects to close on this agreement in June 1996, however, there is no
assurance that his transaction will be completed.
<PAGE>
The Company also utilizes mortgage loan repurchase agreements with Paine
Webber pursuant to which Paine Webber purchases mortgage loans until such
time as the loans are pooled for resale to an end investor at which time the
Company repurchases such loans. Such agreements provide for interest
payments based on the federal funds rate. These agreements can be
terminated on demand.
Prior to the fiscal year ended January 31, 1992, the Company sold all of its
originated loans on a servicing-released basis in order to maximize current
earnings and cash flow. During the fiscal year ended January 31, 1992, the
Company adopted a strategy to retain servicing rights on a portion of its
loan originations in order to provide a steady stream of servicing revenues
and cash flow in future years and as a hedge against inflation and rising
interest rates. To help facilitate this strategy, the Company utilizes
three funding sources: proceeds from a $4.9 million debenture offering that
was completed in July 1993, a bank credit facility, which was first made
available to the Company in April 1993 and proceeds from a $10.0 million
best-efforts debenture offering which commenced in December 1994 and is
continuing. As of April 30, 1996 the Company had sold $5.6 million of these
debentures. Each of the debentures , as well as the credit facility are
collateralized by certain of the Company's servicing rights and rights to
servicing income. The credit facility, which is currently at $28.5 million,
is with Comerica Bank and is enhanced by a stand-by Note Purchase Agreement
between Comerica Bank and the Policemen and Firemen Retirement System of the
City of Detroit (the "Fund") whereby the Fund has agreed to provide payment
to Comerica Bank upon the occurrence of certain events of default by the
Company. This enhancement permits the Company to obtain a more favorable
interest rate and collateralization terms from the lending bank. In
consideration for the credit enhancement provided, the Company agreed to pay
certain fees to the Fund and provide it with an option to purchase up to 5%
of the Company's outstanding common stock, at 70% of the public offering
price per share, if the Company completes a firm commitment underwritten
sale of its common stock prior to April 30, 2000. At April 30, 1996, $28.5
million was outstanding under the Comerica Bank credit facility.
As in mortgage banking, the Company also has a need to finance loan funding
activities with respect to its land contract syndications until such time as
the loans are packaged and sold to investors. The principal sources of this
financing are two limited partnerships which have been established in order
to provide up to $4 million for this purpose. These partnerships will
terminate in December 1997. The Company is considering several alternatives
to extend or replace these financing sources at the time of their respective
terminations. There is no assurance that the Company will be successful in
extending or replacing these financing sources, however.
The Company also has $1 million available under a $1.5 million credit
facility with a commercial bank which is similar in structure to a mortgage
warehouse line of credit. This portion of the credit facility is used
exclusively for the warehousing of land contracts. The additional $0.5
million is available for working capital. At April 30, 1996, $1.5 million
was outstanding under this facility.
The Company has $3 million available under two credit facilities with
commercial banks for the acquisition and rehabilitation of residential real
property prior to resale. At April 30, 1996, $1.7 million was outstanding
under these facilities.
On May 31, 1996, the Company filed a Registration Statement with the
Securities and Exchange Commission (the "Commission") in order to register
$6,000,000 in aggregate principal amount of Subordinated Debentures. The
interest rate with respect to these debentures has not yet been determined
at this time but is expected to be between 12% and 13%. This offering will
be a best-efforts offering and was declared effective by the Commission on
June 12, 1996.
On April 11, 1996, the Company received a commitment from the Policemen and
Firemen Retirement System of the City of Detroit to lend the Company $15
million in subordinated debt to expand its non-conforming lending business.
There is no assurance that the Company will successfully complete this
financing transaction.
<PAGE>
During the first three months of fiscal 1997, the Company's operating
activities used $14.8 million. Of this, $11.6 million was used to fund the
increase in mortgage loans held for resale. The Company used $5.1 million
to reduce its accounts payable. Sales of land contracts provided $2.0
million. The Company's net investing activities for the three months ended
April 30, 1996 provided $3.7 million. Of this, $3.6 million was received on
sales of purchased servicing rights. Financing activities provided $9.4
million during the first three months of fiscal 1997. The $8.2 million in
net proceeds from notes payable was used to fund mortgage loans and invest
in purchased servicing rights and real estate. Sales in connection with the
Company's debenture offering that commenced in December 1994 provided $1.3
million.
Results of Operations
Overview
The Company experienced a net loss of $685,524 for the three months ending
April 30, 1996 as compared to a net loss of $837,186 for the three months
ended April 30, 1995. While origination volumes increased significantly in
the first quarter of fiscal 1997 as compared to fiscal 1996, the increase
occurred mainly in conforming conventional products which have smaller
margins than non-conforming products. Increased payroll and general and
administrative expenses were partially offset by increased sales of real
estate and bulk servicing rights.
The Company is continuing to focus on growth in the more profitable non-
conforming mortgage area. The Company has opened three regional lending
centers specializing in these types of mortgages that will service our
existing branch network as they shift more of their production into non-
conforming lending. The Company has received a commitment from the
Policemen and Firemen Retirement System of the City of Detroit to lend the
Company $15 million in subordinated debt to expand its non-conforming
lending business.
Revenues
Overall revenues for the three months ended April 30, 1996 increased 69% to
$11,418,335 as compared to $6,750,896 for the three months ended April 30,
1995. Gains on sales of land contracts decreased 17% from $723,206 for the
three months ended April 30, 1995 to $600,104 for the three months ended
April 30, 1996. The Company believes this resulted from declining interest
rates during the first half of the quarter. Gains on sales of real estate
increased 151% to $2,041,701 from $780,944 for the quarters ending April 30,
1996 and 1995 respectively. Additional use of credit facilities and a
general increase in market activity enabled the Company to sell 200 homes in
the first quarter as compared to 78 homes last year. The Company sold
servicing rights to $222 million in mortgages in the first quarter of fiscal
1997 as compared to $62 million in the first quarter of fiscal 1996. This
resulted in increased gains on sale of bulk servicing rights. The gains
increased to $1,915,486 for the three months ended April 30, 1996 as
compared to $678,813 for the three months ended April 30, 1995. This
increase relates to mortgage origination volumes that increased to $240
million in the first three months of fiscal 1997 as compared to $89 million
in the first three months of fiscal 1996. The Company believes that
declining interest rates in the first half of the quarter as well as minimal
turnover of branch offices were responsible for this increase. While
origination volumes increased 170%, origination fees and gains on sale of
mortgages only increased 51% from $2,124, 337 in the first quarter of fiscal
1996 to $3,212,184 in the first quarter of fiscal 1997. This was due to the
fact that origination volume increases were primarily in products with low
margins and the Company found it necessary to use price concessions in
certain branch offices to remain competitive in local markets. Servicing
fees increased $311,073, or 22% from $1,389,846 for the three months ended
April 30, 1995 to $1,700,919 for the three months ended April 30, 1996.
This corresponds to the 54% increase in the Company's servicing portfolio
from $1.3 billion to $2.0 billion at April 30, 1995 and 1996, respectively.
Increases in interest income from $828,657 to $1,661,405 for the quarters
end April 30, 1995 and 1996, respectively, followed the increase in mortgage
origination volumes, but were partially offset by lower interest rates.
<PAGE>
Expenses
Payroll and commissions increased $1,847,247, or 51%, to $5,394,907 from
$3,621,077 for the quarters ended April 30, 1996 and 1995, respectively,
which was consistent with overall revenue increases. As a percentage of
revenue, payroll and commissions dropped to 47% from 54% for these periods.
This is primarily due to technological advances and systems improvements
that allow an increased volume of originations to be added without a
proportionate increase in the number of staff. Interest expense for the
quarter ending April 30, 1996 was $2,278,810 as compared to $1,407,253 for
the quarter ending April 30, 1995. This 62% increase follows increases in
mortgage originations, but is offset by lower interest rates on the
Company's various lines of credit and more rapid sales of conforming
products to end investors. Amortization expense increased $670,795 to
$1,125,709 from $454,914 for the three months ended April 30, 1996 and 1995,
respectively. This is the result of the increased size of the Company's
servicing portfolio and write-offs of certain deferred charges. Runoff
rates of the Company's servicing portfolio remained constant. General and
administrative expenses were $3,039,049 for the three months ended April 30,
1996 as compared to $2,096,767 for the three months ended April 30, 1995.
The 45% increase was consistent with the increased production volumes and
revenues during the first quarter of fiscal 1997. As of April 30, 1996 the
Company had mortgage origination employees in 35 locations as compared to 28
locations at April 30, 1995. As the Company's fiscal 1997 business plan
progresses management will continually evaluate non-performing offices for
possible closure.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The following exhibit is filed with this report:
27 - Financial Data Schedule
(b) Reports on Form 8-K.
The Company was not required to file any current reports on Form
8-K during the quarter ended April 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MCA FINANCIAL CORP.
Date: June 13, 1996 By: /s/ Patrick D. Quinlan
-----------------------
Patrick D. Quinlan,
Chairman
(Principal Executive
Officer)
Date: June 13, 1996 By: /s/ Keith D. Pietila
-----------------------
Keith D. Pietila,
Executive Vice President
(Principal Financial and
Accounting Officer)
<PAGE>
Exhibit Index
Exhibit Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 961
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,364
<DEPRECIATION> (1,513)
<TOTAL-ASSETS> 137,835
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
5,396
<COMMON> 4
<OTHER-SE> 3,954
<TOTAL-LIABILITY-AND-EQUITY> 137,835
<SALES> 0
<TOTAL-REVENUES> 11,418
<CGS> 0
<TOTAL-COSTS> 10,125
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,279
<INCOME-PRETAX> (986)
<INCOME-TAX> 300
<INCOME-CONTINUING> (686)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (686)
<EPS-PRIMARY> (1.53)
<EPS-DILUTED> (1.53)
</TABLE>
